The pace of U.S. auto sales decelerated sharply in August, and deliveries fell 4.2% even as car companies ladled out sweeter incentives, the strongest signal yet the industry’s growth streak is losing steam.

Monthly sales volumes remain at a historically strong level with auto makers consistently selling 1.5 million units a month. If those levels continue, this year’s light vehicle sales could top the 17.5 million sales record set in...